After years of divided opinions of Britain and the European Union, a tentative Brexit deal has finally been reached. Despite serious doubts, the agreement is expected to be approved by U.K. lawmakers at the Westminster.
U.K. prime minister Boris Johnson tweeted that “we have a great new Brexit deal.” He urged U.K. lawmakers to support the deal once it gets placed before the Parliament. EU leaders, in the meanwhile, have approved the “withdrawal agreement.”
The key issue that had been bothering both the parties was finding a suitable way to allow goods and people move freely between U.K.’s Northern Ireland and EU’s member Republic of Ireland. Per the new deal, Northern Ireland will continue to remain part of the U.K. and would be the entry point into EU’s single market. What’s more, there won’t be any regulatory checks between Northern Ireland and Republic of Ireland.
Johnson and Irish Prime Minister Leo Varadkar have discussed ways of reaching a solution to Brexit negotiations following a diplomatic standoff over dodging a hard border appearing on the island of Ireland after Brexit.
Nonetheless, the deal protects citizens’ rights and covers a transition period that will last till the end of 2020. Michel Barnier, the EU’s chief Brexit negotiator, by the way said that both the U.K. and EU are working toward an “ambitious free trade deal with zero tariffs and quotas.”
As U.K. and EU reached a draft Brexit deal, the pound strengthened against the U.S. dollar and remained near multi-week highs. Lest we forget, the currency had declined nearly 15% since 2016’s EU referendum vote, while the greenback had strengthened.
The pound strength against the dollar, however, hasn’t gone down well with U.K.’s large caps, especially oil majors like BP p.l.c. BP, as it makes their exports more expensive. So, it’s largely expected that share prices will move down following the Brexit deal.
The FTSE 100 is already down, as its combined revenue is either earned in dollars or dollar linked currencies. But, there are many players who will witness an uptick in their respective share prices, thanks to the Brexit deal.
Food makers will certainly rejoice! U.K. imports nearly half of what it consumes. And most of the food and agricultural products are imported from the EU. Thus, lack of a smooth deal would have led to an increase in agricultural import prices, eating into the margins of producers and grocers. But due to the Brexit deal, suppliers of ingredients and pre-prepared food such as Kerry Group will now have improved profit margins.
Carmakers like Peugeot S.A. PUGOY for long urged both the U.K. and EU to seal a deal to prevent production disruption. This breakthrough will surely help carmakers in the near term. In fact, the Brexit deal will drive retailers like Next plc NXGPY, a Zacks Rank #2 (Buy) company. And why not? If the U.K. had left the EU without a deal, pound would have fallen leading to an uptick in inflation. This in turn would have affected consumer outlays, something that doesn’t bode well for retailers. A weaker pound, by the way, also leads to higher import costs for retailers. You can see the complete list of today’s Zacks #1 Rank stocks here.
U.K. banks, in particular, saw their shares collectively increase more than 10% on hopes that a Brexit deal could avert further weakening in the British economy. After all, recent U.K. economic data showed that average weekly earnings decreased from 4% to 3.8% in August. Moreover, there has been a 56,000 drop in the three-month rolling average of employment during August.
Needless to say, international players like Barclays plc BCS saw shares rise 0.4%. Meanwhile, domestically-focused institutions like Lloyds Banking Group plc LYG should now breathe a sigh of relief. After all, such banks would have been affected the most in case of any economic downturn owing to a no-Brexit deal.
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PEUGEOT SA (PUGOY) : Free Stock Analysis Report
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